What to agree before a joint venture with a Chinese company

A joint venture in China is now an ordinary limited liability company under the Company Law. The old rule that gave each side a veto through board unanimity was repealed in 2020. Two-thirds of the votes now decide the big changes, so a partner holding a third or less cannot block any of them unless the articles say otherwise.

Your Chinese distributor wants to go further: a company in China, owned together, with its sales team and your brand. The term sheet it has sent fixes the split at 60 to 40 in its favour and says little else. That split decides more than it did before 2020. A joint venture used to come with its own rulebook, in which each side’s directors could stop the biggest decisions. That rulebook has gone, and what replaced it gives a minority partner the Company Law’s defaults and whatever the company’s articles of association (公司章程) add.

The figure to watch is one third, not one half. With a third or less, you cannot stop the majority partner amending the articles, raising capital or dissolving the company. The rest of this page is what else the law decides for you if the articles stay silent.

Is a Chinese joint venture still a special kind of company?

No. Since 1 January 2020 a foreign-invested company’s form, organs and rules follow the Company Law, as a Chinese-owned company’s do.^⁠[1] Under the old equity joint venture regulations the board was the highest authority. Four decisions needed every director present to agree: amending the articles, suspending or dissolving the venture, changing its registered capital, and merging or dividing it.^⁠[2] Those regulations were repealed on the same day.^⁠[3]

Ventures formed before 2020 had until 31 December 2024 to bring their organs into line, and since 1 January 2025 the registry will not process their other registration applications until they do. Terms the original partners agreed on transferring their stakes and on dividing profits and residual property may continue as agreed.^⁠[3] What the conversion means for an older company’s directors and filings is in what directors and officers a Chinese company must have.

In a few sectors the partner is not a choice. The 2024 negative list allows foreign investment in market research and in medical institutions only through a joint venture, and caps the foreign share of most value-added telecoms businesses at 50%. Where a field carries an equity requirement, a foreign-invested partnership is not available as a way round it.^⁠[4] The full list is explained in China’s negative list.

With 40% of the company, what can we block?

The changes that need two-thirds of the votes, and nothing else, unless the articles add to the list. The shareholders’ meeting (股东会) is the company’s organ of power, and shareholders vote in proportion to their contributions unless the articles provide otherwise.^⁠[5]

Decision	Default threshold	At 40%	At 30%
Amend the articles	Two-thirds of the votes or more	Can block	Cannot block
Increase or reduce registered capital	Two-thirds of the votes or more	Can block	Cannot block
Merge, divide, dissolve or change the company’s form	Two-thirds of the votes or more	Can block	Cannot block
Other shareholder resolutions, including electing directors and approving the profit plan	More than half of the votes	Cannot block	Cannot block
Board resolutions	More than half of all directors, one vote each	Depends on seats, not shares	Depends on seats, not shares

Say a Dutch equipment brand takes 40% of a Hangzhou company and its distributor takes 60%. The distributor elects the directors on its own, because that takes a simple majority. It cannot amend the articles or bring in new capital without the Dutch side, because 60% falls short of two-thirds. Move the split to 70 to 30 and the Dutch side loses even that. Any further veto, on a budget, a new product line or a sale of the brand’s distribution rights, exists only if it is written into the articles.^⁠[5]

Who runs the company day to day?

Whoever holds the board seats and the legal representative’s post. A limited liability company has a board of three or more, or a single director if it is small, and the board decides by a majority of all directors with one vote each.^⁠[5] A 40% partner with one seat in three is outvoted on every board decision.

The legal representative (法定代表人) is the director who executes the company’s affairs or the manager, whichever the articles name (Company Law Article 10).^⁠[5] Who nominates the legal representative, the general manager and the finance lead is one of the terms worth settling in the term sheet. What the role carries is set out in what a legal representative is.

What if our partner does not pay in its share of the capital?

Each shareholder pays what it subscribed within five years of the company’s formation, on the dates in the articles.^⁠[5] When a date passes, the company sends a written call with a grace period of at least 60 days. If the money still does not arrive, the board may resolve to send a forfeiture notice (失权通知). From the day it is sent, the shareholder loses the equity it has not paid for.^⁠[5,6]

Note who decides. In the Hangzhou example the distributor holds two of three board seats, so the decision to forfeit the distributor’s own unpaid stake sits with directors the distributor appointed. If forfeited equity is neither transferred nor cancelled within six months, the other shareholders must pay it in, in proportion to their contributions.^⁠[6] How registered capital and its deadlines work is covered separately.

Two more defaults follow the money actually paid in, not the money promised. Profits are divided by paid-in contributions unless all shareholders agree otherwise.^⁠[5] On a capital increase, shareholders may take up new capital first in proportion to paid-in contributions, again unless all shareholders agree otherwise.^⁠[6] A partner that pays early and in full can therefore grow its stake at the next capital increase, whatever the original split said.

How do we get out if it goes wrong?

By the default rules, through a sale with the partner’s right of first refusal, or in a few cases through the courts. A shareholder selling to an outsider must give the others written notice of the quantity, price, payment terms and timing. They may buy on the same terms, and a shareholder that does not reply within 30 days is treated as having waived. The articles may set different transfer rules.^⁠[5,6]

Route	Who can use it	When
Sell to an outsider	Any shareholder	After written notice; the others have 30 days to match the terms
Ask the company to buy your stake at a reasonable price	A shareholder who voted against the resolution; in the abuse case, any other shareholder	No dividend for five consecutive years in which the company made a profit each year and met the conditions for paying one; a merger, a division or a transfer of the main assets; or a vote to extend the company past its term. Also where a controlling shareholder abuses its rights and seriously harms the company or the other shareholders
Ask a court to dissolve the company	Shareholders with 10% or more of the votes	Serious difficulty in running the company, continued existence would cause shareholders serious loss, and no other way can resolve it

If neither side finds a buyer, a deadlock left to these defaults ends in a courtroom. Guiding Case No. 8, published by the Supreme People’s Court, is one example. Two shareholders held a Jiangsu company 50 to 50, and from 1 June 2006 they held no shareholders’ meeting at all.^⁠[7]

The company was still making a profit, and the first court refused to dissolve it in December 2009. On 19 October 2010 the Jiangsu High People’s Court ordered it dissolved: a profitable company whose shareholders’ meeting has stopped working can still be in serious difficulty.^⁠[7] More than four years passed between 1 June 2006 and the order.

The law offers no buy-sell clause, no put or call option and no agreed valuation. Any exit faster or cheaper than these has to be agreed by the partners and written down before the company is formed.

Which law governs the joint venture contract?

Chinese law, for an equity or cooperative joint venture contract performed in China (Civil Code Article 467).^⁠[8] How far that article reaches a venture formed as an ordinary company since 2020 is not settled. Which law can govern a China contract sets out the question.

Can the foreign partner’s own government restrict the investment?

The US government can, in three technology sectors. Since 2 January 2025 some investments by US persons in Chinese businesses in semiconductors and microelectronics, quantum information technologies and artificial intelligence have been prohibited, and others must be notified to the US Treasury. Entering a joint venture is one of the transactions it covers.^⁠[9,10] The European Union has asked its member states to review such investments, but no EU rule binds investors.^⁠[11] The table sets out both, as at 15 October 2026.

Investor based in	The rule	What it covers	What happens next
United States	Outbound Investment Security Program, 31 CFR Part 850, in force since 2 January 2025	Investments by US persons in Chinese businesses, Hong Kong and Macau included, in semiconductors and microelectronics, quantum information technologies and artificial intelligence. Some are prohibited and others must be notified. Entering a joint venture is covered.	The COINS Act, law since 18 December 2025, orders Treasury to issue new regulations within 450 days, so by 13 March 2027. The current rules apply until then.
European Union	Commission Recommendation (EU) 2025/63 of 15 January 2025, which asks member states to review and assess risks, not to approve	Investments by EU investors outside the EU in semiconductors, artificial intelligence and quantum technologies, back to 1 January 2021	Member states’ full reports were due by 30 June 2026. They will inform whether further action is needed at EU or national level.

A term sheet is the easiest moment to change any of these defaults. Market Entry and Structure Advisory compares a joint venture with a wholly owned company or a distribution deal for your product. A Contract Commercial Review reads the term sheet or the draft articles, in both languages, for what each term commits you to and what to ask for before you sign. Negotiation Support takes those points to the table with you.

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Holding a joint venture term sheet from a Chinese partner? Contract Commercial Review We read it, and the Chinese version, clause by clause: what each term commits you to commercially, and what to push back on before you sign. From US$1,500, 3–7 working days. See the service